Trade Wars and Insurance
In April 2025, the Trump administration escalated its trade policy by imposing tariffs as high as 145% on Chinese imports, marking a significant intensification in the ongoing trade conflict. China responded with retaliatory tariffs of up to 125% on U.S. goods. This escalation has disrupted global supply chains, increased costs for businesses and consumers, and introduced new complexities for the insurance industry. Insurers, brokers, and risk managers are now grappling with the multifaceted impacts of these trade barriers across various lines of insurance.
Trade Credit Insurance: Rising Demand Amid Economic Strain
The heightened tariffs have placed considerable financial strain on businesses reliant on Chinese imports. Increased costs and disrupted supply chains have led to cash flow issues and a higher risk of defaults on payments. As a result, there has been a surge in demand for trade credit insurance, which protects businesses against non-payment by customers. Insurers are responding by reassessing risk models, tightening underwriting standards, and, in some cases, raising premiums to account for the increased risk of defaults.
According to a report by Aon, the sweeping tariffs announced by the U.S. could see firms turning to trade credit insurance to grow existing and new buyer relationships, aid credit management decision-making, and mitigate risks associated with the current trade environment. InsuranceAsia News
Business Interruption Insurance: Addressing Non-Physical Disruptions
Traditional business interruption insurance typically covers losses resulting from physical damage. However, the current trade disruptions, while not causing physical damage, have led to significant operational interruptions. Businesses are experiencing delays and increased costs due to the tariffs, leading to a reevaluation of business interruption policies. Some insurers are exploring endorsements or specialized products that cover non-physical disruptions, such as those caused by trade policies or supply chain interruptions.
The American Property Casualty Insurance Association (APCIA) has noted that the broad scope of the tariffs is likely to hurt families, individuals, and business owners they are meant to protect. Insurance Journal
Cargo and Marine Insurance: Navigating Increased Risks
The tariffs have led to changes in shipping patterns, with businesses seeking alternative routes or suppliers to mitigate costs. These changes introduce new risks, including longer transit times and unfamiliar shipping routes. Marine insurers are adjusting to these developments by reassessing coverage terms, considering higher premiums, and closely monitoring the evolving risk landscape associated with cargo transportation under the new trade conditions.
Flexport CEO Ryan Petersen reported that ocean freight bookings from China dropped by 35% in the week following the tariff implementation, indicating significant disruptions in shipping volumes. FreightWaves
Property and Casualty Insurance: Inflationary Pressures and Increased Claims
The increased tariffs have contributed to inflationary pressures, particularly in sectors reliant on imported materials. For instance, tariffs on steel and aluminum have raised construction costs, impacting property insurance valuations and claims. Additionally, higher costs for vehicle parts due to tariffs have led to increased auto repair expenses, influencing auto insurance premiums. Insurers are adjusting to these inflationary trends by revising coverage limits and premiums to reflect the higher replacement and repair costs.
Sridhar Manyem, Senior Director at AM Best, stated, "Given the supply chains that the U.S. auto industry has established with Canada and Mexico, any disruptions and inflationary impacts due to the tariffs will be a credit negative for carriers." Insurance Journal
The Takeaway
The escalation of tariffs between the U.S. and China has far-reaching implications for the insurance industry. Insurers must adapt to the evolving risk landscape by reassessing coverage offerings, underwriting practices, and pricing strategies. Businesses, in turn, should engage with their insurers to ensure adequate protection against the new risks arising from the current trade environment. As the situation continues to develop, ongoing collaboration between insurers and insureds will be crucial in navigating the challenges posed by the trade conflict.
